TMI Blog2017 (3) TMI 1725X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1084/Mum/2014, ITA No.1719/Mum/2015 - - - Dated:- 22-3-2017 - SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER For the Appellant : Shri B.V. Jhaveri (AR) For the Respondent : Shri Abhishek Tilak ORDER PER PAWAN SINGH, JUDICIAL MEMBER: 1. This order shall dispose of a bunch of three appeals out of which first two Cross Appeals for AY 2009-10 and third one by assessee for AY 2010-11. The appeals for AY 2009-10 are directed against the assessment dated 19.12.2013 and appeal for AY 2010-11 is directed against the order dated 19.01.2015, both the order impugned in these appeals are passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act pursuant to the directions of Dispute Resolution Penal(DRP). According to ld representatives of the parties, the common grounds of appeal are raised, facts are also common, hence all the appeal were heard and are being decided together to avoid the conflicting decisions. The assessee in ITA No. 1045/Mum/2014 for AY 2009-10 has raised the following grounds of appeal: 1. The order passed by the Ld. D.C.I.T. is bad in law, unjust and unfair. 2. The Ld. D.C.I.T. failed to appreciate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of hearing, the decision of the DRP may be set aside and that of AO restored. 3. In ITA No. 1719/Mum/2015 for AY 2010-11, the assessee has raised the following grounds of appeal: 1. The order passed by the learned ACIT is bad in law, unjust and unfair. 2. a) The learned ACIT erred in making additions of INR 73,45,641/- by disallowing Advertising, Marketing and Promotion (AMP) expenses. b) The learned ACIT failed to appreciate the fact that these expenses were incurred 'wholly and exclusively' for purpose of business of the assessee in India and there will not be any reimbursement of such expenses by CD France. c) The learned ACIT erred in alleging that there exists an arrangement between the Assessee Company and CD France and thereby erred in contending that CD France needs to compensate the Assessee Company towards AMP expenses. d) The learned ACIT erred in applying Indian transfer pricing regulations to transactions between CD India and third parties as there was no reference made by the ACIT to TPO in this regard. The ACIT / TPO erred in concluding that AMP expenses of CD India, which is incurred by way of payments to third parties, as an internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nish the necessary details and document in support of ALP. The TPO observed that during the year under consideration, the assessee-company incurred considerable expenditure on advertisement, marketing and as per audit report, the AMP expenditure was ₹ 4.47 Crore against net sale of ₹ 11.29 Crore which is 39.57% on sales. The TPO further observed that assessee is incurring brand promotion expenses for promotion of Brand of its AE. The assessee was asked to explain as to why the excess AMP expenditure should not be treated as adjustment in respect of reimbursement of Brand Promotion and Marketing intangible of AE in India. The assessee filed its reply dated 21.01.2013 and contended therein that the AMP expenses incurred by assessee are not International Transaction, the AMP expenses has not been incurred for the benefit of AE, there is no mark up on non-routine AMP expenses incurred by assessee and the comparable selected for the purpose of ALP of AMP expenses is not correct. The contention of the assessee was not accepted by TPO holding that the AMP expenditure of ₹ 2.45 Crore and the assessee itself make it clear that ₹ 2.02 Crore pertains to non-marketing e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Malathi Sridharan and Sh. Abhishek Tilak Ld. CIT-DRs for revenue and gone through the orders of the authorities below. In addition to the oral submission both the parties filed their written synopsis. The ld. counsel for assessee argued that the advertisement expenses incurred by Indian licensee of a foreign brand are not an international transaction as held by Hon ble Bombay High Court in CIT versus NGC Network India Private Limited. The decision of jurisdictional High Court is a binding precedent on all subordinate Courts and Tribunal of the State having territorial jurisdiction as held by the Supreme Court in Bishnu Ram Borah versus Paraf Saikia. Thus, it was prayed that the adjustment made by assessing officer in respect of AMP expenses incurred by the assessee may be deleted. In alternative submission the learned counsel would submit that one-time extraordinary expenses should not be included as AMP expenses. The assessee company has incurred AMP expenses during the previous year relating to the assessment year under consideration aggregating to ₹ 2,40,73,208/- which was rounded off by the assessing officer to ₹ 2,45,00,000/-. The expenses consist of business pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Mahindra Retail market the brand on the goods that they sale and hence Mahindra Retail Private limited should be regarded as most appropriate comparable. The learned counsel submitted that the AMP expenses of the assessee company at 10.57% of the sales(after excluding extra ordinary item) is well within the limit and therefore no portion of AMP expenses can be regarded as toward promotion of brand owned by AE. For Saga Department Store it was argued that this comparable was rejected by DRP on the ground that the turnover during the year has reduced on account of terrorist attack in Mumbai and global meltdown and local sale of company includes sales of Y K Guy license, value of which is not discernible from the accounts. The DRP specified a reason of rejection of a general in nature as all company situated in Mumbai were affected by the terrorist attack. The sale value of YK Guy license was made available in the form of documentary evidence as per page 144 paper book and the sale value of licensees shown at ₹ 39,00,295/-. Therefore, it is incorrect on the part of DRP to observe that the sale value is not discernible from the accounts. The DRP has no valid reason for discard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution of branded luxury products like watches, jewellery, sunglasses, ready to be a reference et cetera to end consumers. Moreover the total sale and service cost for the year ended on 31 March 2009 is of ₹ 44.23 Crore which includes service related revenue and is not discernible and cannot be compared with the business activities of the assessee company. The figures of sales and AMP expenses referred to by TPO in its order are incorrect inasmuch is the sales and service turnover ended on 31 March 2009 was ₹ 44.23 Crore and advertisement and publicity expenses were ₹ 1.80 Crore therefore AMP expenses to sales works out to ₹ 4.09%. For Central cottage Industries Corporation of India Ltd, it was argued that this company is primarily owned by the Government of India. That being the company of the Government of India, the company has a different operational revenue model as compared to an independent entertainer distributor s revenue model. Therefore, the AMP expenses of this company are not comparable with the AMP expenses of the assessee company. Secondly, this company deals in handicrafts and handloom product and other related services and therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive argued that from Transfer Pricing Study Report (TPSR) it is observed that for the purpose of applicability of CUP, the assessee has given the comparative of the price of some of the products which has been purchased its AE vis- -vis price at which the same products were sold by AE to the third party. The assessee itself, in its TPSR submitted, about the advertisement and marketing expenses as international transaction. The assessee itself applied CUP as most appropriate method for determining the transaction with its AE for determining ALP for AMP. From the comparability made by the assessee it is seen that it has not taken into account the AMP functions performed by it, the assessee has not given any submission as to whether AMP function performed by it has been factored while making the comparability analysis. No details as to whether other party in the comparable uncontrolled transaction was performing the AMP functions along with relevant documents, agreements etc. Have been brought on record. The TPO in its order has not disturbed the CUP method followed by the assessee, as separate addition on account of AMP function was made. This was made in pursuance to the then preva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in case of Sony Ericsson Mobile Communication. In the rejoinder argument, the ld. counsel for assessee argued that all the cases referred and relied by him and related with manufacturer and distributor and the court has considered both the segments. Ld. Counsel for assessee also agreed for setting-aside the grounds of appeal related with AMP to the file of TPO/AO. 7. We have considered the rival contention of the parties and further gone through the order of TPO, DRP and order passed by AO in pursuance of direction of DRP. We have noticed that the TPO proposed the adjustment by applying the Bright Line Test on account of AMP expenses incurred by assessee. The Bright Line Test has been overruled by the decision of Sony Ericsson Mobile Communication (supra). The TPO and the DRP was not having the benefit of the decision as the same was delivered on 16.03.2015. We therefore, considering the fact and totality, the ratio laid down by Hon ble Delhi High Court and the submission made before us by ld. representative of the parties, we deem it appropriate to set-aside the issue relating to the adjustment on account of AMP to the file of TPO/AO to decide the issue afresh relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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